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Compound Interest – Practice Questions Chapter 20

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Compound Interest – Practice Questions Chapter 20

  • This topic has 6 replies, 3 voices, and was last updated 9 years ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • March 3, 2016 at 6:22 pm #303296
    acaim
    Member
    • Topics: 6
    • Replies: 5
    • ☆

    Hi,

    I am struggling to grasp the answer to Q4 on the practice questions for Chapter 20 (of the lecture notes).

    Question is: A person invests $600 for a period of 8 years. Interest is compounded at 5% per annum for the first 3 years, and 6% per annum for the remaining 5 years. How much will they have at the end of 8 years?

    I would use calculations 600 x (1.05) to power of 3 + (1.06)to power of 5 but I end up with $695 NOT the correct answer of $929.

    Please explain how to arrive at the answer with workings please.

    Thank you!!

    March 3, 2016 at 7:03 pm #303302
    dumonde
    Participant
    • Topics: 28
    • Replies: 58
    • ☆☆

    Surely the answers is as follows

    $600×1.05^3
    Then ANS from above of $694.575
    $695.575×1.06^5= $929.498

    March 4, 2016 at 7:09 am #303355
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    Dumonde: You answer is correct (although please don’t answer in this forum because it is Ask the Tutor Forum. (But do certainly help people in the other F2 forum 🙂 ) )

    March 4, 2016 at 7:55 am #303370
    dumonde
    Participant
    • Topics: 28
    • Replies: 58
    • ☆☆

    Whoops! My apologies John, I didn’t know we were not supposed to answer here, thanks for the heads up.

    March 4, 2016 at 10:58 am #303408
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    No problem 🙂

    March 4, 2016 at 11:02 am #303410
    acaim
    Member
    • Topics: 6
    • Replies: 5
    • ☆

    Thank you very much to both of you for your help! I’m not sure why I was convinced to use addition but it all makes sense now 🙂 thank you

    March 4, 2016 at 2:17 pm #303428
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54671
    • ☆☆☆☆☆

    You are welcome 🙂

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